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Automakers Bear the Brunt of Regulatory Changes
Jan 4, 2016

Year 2015, towards the end, must have left a bitter taste in the mouths of auto manufacturers. After a long period of slowdown, these companies were showing some signs of recovery. The festive season, supported by new launches in fact saw a double digit growth in the Utility Vehicle (UV) segment.

However, the trend came to an abrupt halt in December. The registration ban on diesel vehicles of 2000 cc and above in National Capital Region was not something that auto makers were prepared for (Subscription required). Caught unaware, these companies will need to rethink their business strategy. What happened was not a one time event, but a stark reminder of what all can go wrong and the need to be nimble and prepared enough to face such set backs.

The outcome can already be seen in the languishing sales volumes in UV category. It is not just NCR and diesel cars above 2000 cc that will reflect the impact. Such regulations will go a long way in influencing buyers' decisions for other categories and in other regions.

While it may take longer for companies to redesign their strategy, the message for investors is loud and clear - never take growth and profitability of large profitable companies for granted. And make sure that the management is competent enough to mold the business model to overcome such risks. My colleague Tanushree Banerjee has recently written an interesting piece on what such events tell you about stocks. To read more about the same, please click here.

Data Source:SIAM, Business Standard

This Chart Of The Day was published in The 5 Minute WrapUp - Have You Experienced the Sunk-Cost Fallacy?

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